Question 1

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Accepted Answer

A) True 
 B)False

Question 2

A business taxpayer sold all the depreciable assets of the business, calculated the gains and losses, and would like to know the final character of those gains and losses. The taxpayer had $353,000 of adjusted gross income before considering the gains and losses from sale of the business assets. The taxpayer had unrecaptured § 1231 lookback loss of $12,000. What is the treatment of the gains and losses summarized in the chart below after all possible netting and reclassification has been completed? What is the taxpayer's adjusted gross income? (Ignore the self-employment tax deduction.)

Accepted Answer

The taxpayer has adjusted gross income o...

Question 3

Vertigo, Inc., has a 2017 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2016. For 2017, Vertigo's net § 1231 loss is treated as:

Accepted Answer

A)  Ordinary loss.
B)  Ordinary gain.
C)  Capital loss.
D)  Capital gain.
E)  None of the above.F) A) and D)
G) D) and E) A

Question 4

Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

Accepted Answer

A) True 
 B)False

Question 5

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Accepted Answer

A) True 
 B)False

Question 6

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Accepted Answer

A) True 
 B)False

Question 7

Vanna owned an office building that had been held more than one year when it was sold for $567,000. The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building. Straight-line depreciation of $162,000 had been taken on the building. What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%) gain?

Accepted Answer

The real estate was used in business and...

Question 8

Which of the following is correct?

Accepted Answer

A)  Improperly classifying a § 1231 loss as a capital loss might affect adjusted gross income.
B)  Improperly classifying a capital loss as a § 1231 loss might affect adjusted gross income.
C)  Misclassifying a § 1231 gain as a short-term capital gain might affect adjusted gross income.
D)  Misclassifying a short-term capital gain as a § 1231 gain might affect adjusted gross income.
E)  All of the above.F) None of the above
G) A) and C)

Question 9

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

Accepted Answer

A) True 
 B)False

Question 10

Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

Accepted Answer

A) True 
 B)False

Question 11

Depreciable personal property was sold at a gain in 2016. On what 2016 form would this transaction be reported, where initially in that form, and what will the form most likely do with the gain?

Accepted Answer

The transaction will initially be reported on Form 4797, Part III. In that Part, the gain recaptured by § 1245 will be determined. Most likely, all of the gain will be treated as an ordinary gain because the gain does not exceed the original cost of the property.

Question 12

The Code contains two major depreciation recapture provisions: § 1245 and § 1250.

Accepted Answer

A) True 
 B)False

Question 13

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

Accepted Answer

A) True 
 B)False

Question 14

Betty, a single taxpayer with no dependents, has the gains and losses shown below. Before considering these transactions, Betty has $45,000 of other taxable income. What is the treatment of the gains and losses and what is Betty's taxable income?

Accepted Answer

The § 1245 recapture gains are combined ...

Question 15

Which of the following would extinguish the § 1245 recapture potential?

Accepted Answer

A)  An exchange of depreciable business equipment for like-kind business equipment with gain realized, but not recognized.
B)  A nontaxable incorporation under § 351.
C)  A nontaxable contribution to a partnership under § 721.
D)  A nontaxable reorganization.
E)  None of the above.F) All of the above
G) D) and E)

Question 16

Which of the following assets held by a manufacturing business is a § 1231 asset?

Accepted Answer

A)  Inventory.
B)  Office furniture used in the business and held less than one year.
C)  A factory building used in the business and held more than one year.
D)  Accounts receivable.
E)  All of the above.F) B) and E)
G) B) and D) C

Question 17

Personal use property casualty gains and losses are not subject to the § 1231 rules.

Accepted Answer

A) True 
 B)False

Question 18

Section 1245 applies to amortizable § 197 intangible assets.

Accepted Answer

A) True 
 B)False

Question 19

Red Company had an involuntary conversion on December 23, 2017. The machinery had been acquired on April 1, 2015, for $49,000 and its adjusted basis was $14,200. The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it. This was Red's only casualty or theft event for the year. As a result of this event, Red initially has:

Accepted Answer

A)  $10,000 § 1231 loss.
B)  $10,000 § 1245 recapture gain.
C)  $4,200 casualty loss.
D)  $4,200 § 1231 loss.
E)  None of the above.F) C) and D)
G) B) and C)

Question 20

If there is a net § 1231 loss, it is treated as an ordinary loss.

Accepted Answer

A) True 
 B)False

Exam 17: Property Transactions: 1231 and Recapture Provisions

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Correct Answer
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Correct Answer
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The taxpayer has adjusted gross income o...
View Answer

Vertigo, Inc., has a 2017 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2016. For 2017, Vertigo's net § 1231 loss is treated as:

Correct Answer
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A

Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

Correct Answer
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The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Correct Answer
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A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Correct Answer
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Correct Answer
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The real estate was used in business and...
View Answer

Which of the following is correct?

Correct Answer
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Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

Correct Answer
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Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

Correct Answer
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Depreciable personal property was sold at a gain in 2016. On what 2016 form would this transaction be reported, where initially in that form, and what will the form most likely do with the gain?

Correct Answer
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The transaction will initially be reported on Form 4797, Part III. In that Part, the gain recaptured by § 1245 will be determined. Most likely, all of the gain will be treated as an ordinary gain because the gain does not exceed the original cost of the property.

The Code contains two major depreciation recapture provisions: § 1245 and § 1250.

Correct Answer
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Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

Correct Answer
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Betty, a single taxpayer with no dependents, has the gains and losses shown below. Before considering these transactions, Betty has $45,000 of other taxable income. What is the treatment of the gains and losses and what is Betty's taxable income?

Correct Answer
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The § 1245 recapture gains are combined ...
View Answer

Which of the following would extinguish the § 1245 recapture potential?

Correct Answer
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Which of the following assets held by a manufacturing business is a § 1231 asset?

Correct Answer
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C

Personal use property casualty gains and losses are not subject to the § 1231 rules.

Correct Answer
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Section 1245 applies to amortizable § 197 intangible assets.

Correct Answer
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Correct Answer
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If there is a net § 1231 loss, it is treated as an ordinary loss.

Correct Answer
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Exam 17: Property Transactions: 1231 and Recapture Provisions

Depreciation recapture under § 1245 and § 1250 is reported on Form 4797.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe taxpayer has adjusted gross income o...View AnswerShow Answer

Vertigo, Inc., has a 2017 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2016. For 2017, Vertigo's net § 1231 loss is treated as:

Correct AnswerverifiedA

Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

Correct AnswerverifiedShow Answer

The maximum § 1245 depreciation recapture generally equals the accumulated depreciation.

Correct AnswerverifiedShow Answer

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe real estate was used in business and...View AnswerShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

Correct AnswerverifiedShow Answer

Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.

Correct AnswerverifiedShow Answer

Depreciable personal property was sold at a gain in 2016. On what 2016 form would this transaction be reported, where initially in that form, and what will the form most likely do with the gain?

Correct AnswerverifiedThe transaction will initially be reported on Form 4797, Part III. In that Part, the gain recaptured by § 1245 will be determined. Most likely, all of the gain will be treated as an ordinary gain because the gain does not exceed the original cost of the property.

The Code contains two major depreciation recapture provisions: § 1245 and § 1250.

Correct AnswerverifiedShow Answer

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

Correct AnswerverifiedShow Answer

Betty, a single taxpayer with no dependents, has the gains and losses shown below. Before considering these transactions, Betty has $45,000 of other taxable income. What is the treatment of the gains and losses and what is Betty's taxable income?

Correct AnswerverifiedThe § 1245 recapture gains are combined ...View AnswerShow Answer

Which of the following would extinguish the § 1245 recapture potential?

Correct AnswerverifiedShow Answer

Which of the following assets held by a manufacturing business is a § 1231 asset?

Correct AnswerverifiedC

Personal use property casualty gains and losses are not subject to the § 1231 rules.

Correct AnswerverifiedShow Answer

Section 1245 applies to amortizable § 197 intangible assets.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If there is a net § 1231 loss, it is treated as an ordinary loss.

Correct AnswerverifiedShow Answer

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The taxpayer has adjusted gross income o...
View Answer

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A

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The real estate was used in business and...
View Answer

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The transaction will initially be reported on Form 4797, Part III. In that Part, the gain recaptured by § 1245 will be determined. Most likely, all of the gain will be treated as an ordinary gain because the gain does not exceed the original cost of the property.

Correct Answer
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Correct Answer
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Correct Answer
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The § 1245 recapture gains are combined ...
View Answer

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C

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